Magazine article Journal of Property Management

Family Ties: Succession Planning for Family Businesses Is a Balancing Act of Family Relationships and Savvy Financial Planning

Magazine article Journal of Property Management

Family Ties: Succession Planning for Family Businesses Is a Balancing Act of Family Relationships and Savvy Financial Planning

Article excerpt

When it came to family, F. Orin Woodbury meant business. After founding Woodbury Corporation as a brokerage and property management firm in Salt Lake City, Utah, in 1919, he encouraged his family to get involved in the company.

Now, 87 years later, the company--a commercial, retail, office and hotel development and management corporation--is run by third-generation Woodburys.

"I always expected to go into the family business," said O. Randall Woodbury, CPM and vice president of property management. "We grew up around it. It was dinner-table conversation."

The Woodbury family's ability to continue the business through multiple generations has beaten the odds. Fewer than half--43 percent--of second generations and 23 percent of third generations take over family businesses, according to the American Family Business Survey, conducted by MassMutual Financial Group and the Raymond Institute.

Subsequent generation takeovers experience a greater decline, according to the survey: Nearly 5 percent of fourth generations and a little more than 1 percent of fifth generations take control.

Between financial hurdles and complicated family relationships, keeping the business--and assets--within the family is challenging, sometimes spelling economic disaster for families if not planned properly.

"Planning is critical because it gives the family an opportunity to put into effect what their goals and objectives are," said Peggy Hollander, managing director at the Succession Group in New York City. "You want to have a plan that is flexible enough to be modified and changed tomorrow; it's an ongoing process."

GENERATIONAL GROOMING

One-third of family-run firms have CEOs older than 60, and half of them will likely retire within the next 10 to 15 years, resulting in a major shift in control and wealth, said George Vozikis, director of the Institute for Family Business at the University of Tulsa and the Edward Reighard management chair at California State University, Fresno.

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As the baby boomer generation begins to retire, more family businesses will experience the challenges of growing a business through multiple generations. Recognizing whether future generations are both interested in and capable of running the business is important for passing the business along intact and with potential to not only survive, but thrive.

"One thing I see a lot is the owner's expectation that the next generation is going to take over, but then they don't have an active plan in place to train them," said Jeralyn Seiling, special counsel in the family wealth group at Farella Braun & Martell in San Francisco, Calif. "There is an expectation that by working in the business, the second generation is going to somehow just pick up the expertise."

Often, second or third generation family members work in specific departments, like sales or marketing. Consequently, they only know their respective areas and not business operations as a whole. Experts recommend business owners put a formal or informal training program in place to ensure the next generation understands how the business is managed, makes money and so forth.

Woodbury worked at the company's various properties as a teenager, but knew he needed more advanced knowledge of business and finance to successfully manage the business as an adult. As a result, he went to college and majored in finance with an emphasis on real estate. Today, Woodbury, and his fellow third-generation cousins and his siblings are educating the fourth generation about the inner workings of the company and the family's assets.

"We're trying to treat them just like investor partners," Woodbury said. "We have periodic meetings where we educate them and give them reports. They are all affected by it because it is their inheritance and their investment interests."

Woodbury also said passing on a strong work ethic to younger generations is important: "One of our big challenges is continuing to instill the need and desire to work hard and work together into future generations. …

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